The proof that there is no rebalancing in Europe is easy to find. For example, El Pais reports that Spain’s debt increases by 146 billion euros.
The following is a Mish edited translation of the above Google translation.
- Public debt exceeds 882 billion euros at the end of 2012
- Debt increased by 146 billion euros in one year
- Increase in Prime Minister Mariano Rajoy’s first year is largest ever
- Debt-to-GDP ratio is highest since 1910
- Interest expense hits record high
The government and Bank of Spain debt figures are frightening. Public debt broke records in 2012. In the first year of Mariano Rajoy’s government, debt skyrocketed to € 882 billion, a year-on-year increase of € 146 billion. Never in the economic history of Spain has public debt increased so much in a single year. In five years, the debt has increased by 500 billion euros, the debt is one of the major brakes to the recovery of the Spanish economy.
Debt to GDP
The increase in public debt in 2012 is equivalent to more than 14 percentage points of gross domestic product (GDP). 882 billion euros represent between 83.5% and 84% of the GDP. The government had forecast a ratio of 79.8% for the 2012 budget last July, but has since revised the figure upwards. In relative terms, the debt-to-GDP ratio has been at the highest level of debt in over a century, especially since 1910, when Spain’s debt stood at 88% of GDP, according to historical IMF data. Despite tax cuts and increases, the government of Mariano Rajoy has not been able to significantly reduce the gap in public accounts.
Soaring public debt
click on the graphic for a sharper image
Outstanding liabilities will likely exceed 100% of GDP by the end of the year, and there is over 100 billion euros of public debt in the hands of third parties (mainly Social Security). The figure of 882 billion euros also does not include around 60 billion euros of debt owed by public enterprises.
A disturbing context
For Emilio Ontiveros, president of Financial Analysts International (AFI), “the main problem is the payment of interest, because it is the most unproductive item of expenditure possible and occurs in a country which has had to cut back in other areas and needs to recover growth. “
Spain had never spent so much money to pay only the interest on its debt: 38.66 billion euros. For the first time in history, financial expenditure exceeded personnel expenditure. “If you don’t grow, you can’t pay your debts,” said Ontiveros, who argues that Spain should have asked for the bond buying program prepared by the Central Banking Bank (ECB) to reduce debt. interest paid on Spanish debt markets, a mechanism the government should ask for before rescuing its European partners. “The corollary of this is that Spain needs urgent measures to reduce this expenditure,” he said.
The average interest paid on government debt is 4.1% with an average maturity of 6.1 years, but this level of return that investors demand could increase due to the economic downturn. Despite the truce that the markets granted to Spain, political tensions mounted in Spain and Italy.
Jose Carlos Diez, chief economist of Intermoney, warns that Spain is failing in all the variables that serve to stabilize the debt: its economy is not growing, it pays a high interest rate and has a primary deficit (before the payment of interest on the debt). “This dynamic ultimately leads to non-payment,” he reflects.
Note this final comment from Jose Carlos Diez, Chief Economist Intermoney “This dynamic ultimately leads to non-payment.“
Learn more about non-rebalancing
Many economists are seeing signs of stabilization. I see signs of illusion among economists.
Mike “Mish” Shedlock